Right-sizing EV battery packs to reduce cost and BRM supply constraints

As the battery materials market continues to experience price volatility, we use the Fastmarkets NewGen Battery Cost Index to explore future cell costs and discover whether smaller battery packs offer a solution to the raw material supply crunch

In the quest for a more sustainable future, the role of battery technology is key. Battery demand has surged, raising concerns about the long-term sustainability of battery materials. Muthu Krishna, battery manufacturing cost modeler at Fastmarkets, uses the Fastmarkets NewGen Battery Cost Index to explore forecasts and insights for the key battery raw materials and whether smaller battery packs are the answer for a more sustainable future.

Key highlights:

  • Insights into the cost of each battery material across various regions
  • An in-depth look at regional variations in battery costs
  • Battery material supply constraints and the impact on raw material costs
  • Whether smaller battery packs are the solution to the battery raw material supply crunch

Transparent breakdown of lithium-ion cell costs required to make informed decisions

The Fastmarkets NewGen Battery Cost Index tracks and offers key insights into the cost of cathode active materials (CAM), anode materials and chemistries across different regions. The index is based on a cost model that accounts for monthly average spot market prices for raw materials and other cell components, gigafactory processes and production rates (gigawatt hours per year), yield losses, as well as local economic factors such as energy, labor and other operational costs.

Understanding regional variations in battery cost

Figure 1 presents the estimated cost for nickel manganese cobalt (NCM) 811 cells for a 10 gigawatt-hour per year production rate across four different countries.

Figure 1

In the first quarter of 2023, NCM 811 cell costs in China were estimated to be 101 dollars per kilowatt hour (kWh) and 110 dollars per kWh for South Korea. For Germany and the USA, these estimates were 120 dollars per kWh and 115 dollars per kWh respectively. Europe and Germany command a higher cost due to higher labor, energy and operational costs. Lithium accounts for on average 34% of the total cell cost, with the CAM accounting for 58%. The anode makes up 8% of the total cell cost. All cell manufacturing processes account for 24%.

Constrained supply of raw materials risks pushing cell costs higher

Figure 2 presents the cost of today’s NCM811 and lithium iron phosphate (LFP) cells over the years ahead, based on the Fastmarkets NewGen long-term forecasts for lithium, nickel, cobalt and graphite.

Figure 2a and 2b

Each of the three scenarios – base, high, and low – is based on raw material supplies coming online at different rates, which is broken down further in the Fastmarkets NewGen long-term forecast reports. The dashed lines are the cell cost targets which will enable pack costs to reach 100 dollars per kWh. For NCM 811, this target is estimated to be 78 dollars per kWh and is expected to be reached in 2027 at the earliest.

LFP is more thermally stable than NCM 811, which greatly simplifies pack design. Therefore, its cell cost target is higher, at 83 dollars per kWh and is expected to be reached by 2025. These figures here are global weighted averages, considering local battery demand in key markets (i.e. China will reach these milestones sooner).

Cell costs will initially continue coming down. NCM 811 and LFP both have the potential to reach below 70 dollars per kWh on the cell-level by 2029. However, beyond this point, there is a risk of constrained supply pushing costs back up. To mitigate this, along with improvements in vehicle efficiency, cell and pack design and phasing out cobalt, the industry must also focus on reducing pack sizes.

Industry must not oversize battery electric vehicle (BEV) packs

Passenger BEV packs will account for just over 50% of the annual total battery gigawatt hour demand over the next ten years, and pack sizes for BEVs are currently oversized for most use cases. What effect will reducing pack sizes have on raw material demand?

Figure 3 presents BEV sales vs. BEV battery pack size (kWh) in 2022 for the most popular models in China, Europe and the USA.

Figure 3

The average pack size for passenger BEVs in China in 2022 was 40 kWh. This was considerably higher in Europe (65 kWh) and the USA (75 kWh). The global sales-weighted average pack size was 52 kWh.

These average pack sizes are set to remain relatively stable over the next 10 years despite improvements to cell technology, providing more range and increasing raw material demand. Figure 4 presents the expected 10-year projection of average BEV pack size for key markets.

Figure 4

China’s BEV industry will rely heavily on city-focused use cases, allowing for smaller-range vehicles. The average pack size is estimated to remain around 40–42 kWh. Average pack sizes in North America will be 50% larger, at around 80 kWh. For Europe and other markets, the average BEV pack size is expected to be 67–70 kWh.

Figure 5 investigates the effect of average BEV pack size (outside China) on lithium carbonate equivalent (LCE), cobalt and nickel demand across the next 10 years. The x-axis shows the % reduction in BEV average pack size for markets outside China between 2024-2033. The y-axis shows the effect on the demand drop across this 10-year period of LCE, cobalt and nickel. Electric vehicle (EV) sales for key markets over this period are considered, as well as the estimated cathode chemistry demand.

Figure 5

For example, if average BEV pack sizes outside China are reduced by 15% (i.e. 68 kWh for North America, 57-60 kWh for Europe and the rest of the world) over 2024-2033, then the LCE demand will decrease by just over 1 million tonnes across this period. For cobalt and nickel metal, the demand will drop by 102,000 and 800,000 tonnes respectively. If pack sizes are reduced by 35% outside China, then 2.5 million tonnes of LCE, 240,000 tonnes of cobalt metal and 1.8 million tonnes of nickel metal will be saved.

Reduce BEV battery pack sizes to promote a sustainable transition to electrified mobility

Correctly sizing passenger BEV battery packs to match customer use cases and range requirements will be crucial in enabling a sustainable transition to electrified transportation. Reducing BEV pack size will reduce raw material demand, which will provide time for the supply chain to mature sustainably.

Environmental concerns can be addressed with less time pressure and raw material prices are more likely to stabilize. Smaller battery packs will slash BEV prices, promoting uptake and accelerating recycling streams due to increased supply of aged batteries. Along with correctly sizing BEV battery packs, the EV industry together with governments, must focus on faster-charging battery packs and improving the charging infrastructure.

Access the full battery cost index data

For more insights or information about the Fastmarkets NewGen Battery Cost Index and to see how this can help your business, contact us today.

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